Income Annuity - Good Idea?

[pb4uski]

If the insurance company goes bankrupt there is no federal guarantees like CDs have. One of the biggest issues with Annuities is that it is considered *fixed* income (does not go up every year with Inflation) for rest of life and you've to pay taxes on it. I believe even Social Security Admin considers it as income which can reduce your SS amount (I think but not sure). 2nd issue is that $1 mil. is gone ! you have no access to your principal b/c it's now with Insurance company.

Maybe put $1 mil in short-term bonds or CDs where you can always get your principal even though you may not have a guaranteed monthly income.

WADR, most of your post is just plain wrong.

If the insurance company goes bankrupt there is no federal guarantees like CDs have. ...

Misleading. Insurance companies don't go bankrupt. To begin with, with today's regulatory surveilance they rarely go into receivership where regulators take over. If they do go into receivership most blocks of business are sold or transferred to another insurer. If the regulator can't sell certain blocks of business then the state guaranty association provides for any shortfall and collects assessments from other annuity carriers. While there is some credit risk associated with annuities, the credit risk is negligible if you buy from a well rated carrier.

... One of the biggest issues with Annuities is that it is considered *fixed* income (does not go up every year with Inflation) for rest of life and you've to pay taxes on it. ///

The first part is correct but the second part is totally wrong.

If outside a retirement account then only the portion representing interest is taxable and any return of principal is not taxed. If in a traditional IRA then it generally would be taxable unless the owner had made non-deductble contributions in the past, but if in a Roth IRA it would be tax free (assuming over 59-1/2).

...I believe even Social Security Admin considers it as income which can reduce your SS amount (I think but not sure). ...

Well at least you hedged that response, but it was indeed wrong... SS would not reduce SS for annuity income.

Strike three!

... 2nd issue is that $1 mil. is gone ! you have no access to your principal b/c it's now with Insurance company.

Maybe put $1 mil in short-term bonds or CDs where you can always get your principal even though you may not have a guaranteed monthly income.

That I can agree with. I agree a good bond ladder is preferable to an annuity retain access to your money, but not for the other false reasons that you claim.

 

[badatmath]

This is not a typical case (annuity fraud) but it is where I learned they are only guaranteed up to 250K. And worse your money is tied up in the meantime apparently.

"Like bank accounts, life-insurance products are insured, in this instance by industry-funded guaranty associations that typically protect annuity owners up to $250,000. There’s a rub: Consumers aren’t paid until insurers are put into liquidation, a move that Mr. Lindberg is opposing."


https://archive.ph/20230326143750/h...-by-indicted-financier-greg-lindberg-6a268369

 

[retired1]

WADR, most of your post is just plain wrong.



Misleading. Insurance companies don't go bankrupt. To begin with, with today's regulatory surveilance they rarely go into receivership where regulators take over. If they do go into receivership most blocks of business are sold or transferred to another insurer. If the regulator can't sell certain blocks of business then the state guaranty association provides for any shortfall and collects assessments from other annuity carriers. While there is some credit risk associated with annuities, the credit risk is negligible if you buy from a well rated carrier.


The first part is correct but the second part is totally wrong.

If outside a retirement account then only the portion representing interest is taxable and any return of principal is not taxed. If in a traditional IRA then it generally would be taxable unless the owner had made non-deductble contributions in the past, but if in a Roth IRA it would be tax free (assuming over 59-1/2).



Well at least you hedged that response, but it was indeed wrong... SS would not reduce SS for annuity income.

Strike three!


That I can agree with. I agree a good bond ladder is preferable to an annuity retain access to your money, but not for the other false reasons that you claim.

Thank you for elaborating and correcting my points. I actually learned from your post so I appreciate your response !!

 

[dknighd]

Our Fidelity advisor has recommended that we consider an income annuity

I think it is worth considering. I don't think I'd do it in your 40's. And I would probably not do $1M. But an income annuity is certainly something to consider. A payout rate of 6.2%, on a dual life policy, with 20 years guarantee, is worth considering. Who knows, you could be collecting on that for 50+ years. Or, it could be just 20 years. I would not do it at your age, but it might be something to consider again in the future. Typically payout rates go up as you get older, but, who knows what future interest rates might be.
Obviously some people have considered it, and decided it is not for them. Fair enough. I happen to value an income stream that will last the rest of our lives. It is probably the only insurance product I've ever purchased that I actually hope to profit from. So far I've annuitized about 20% or our nest egg. I'll probably annuitized 5% more. That leaves 75% available and more flexible.
I am not suggesting that anybody should buy one, but I think they are worth considering.


Edit: If you collect for only 20 years you "lose". But you will still have most of your other money. If you collect for 50+ years you "win." How lucky do you feel?


Edit2: I'm buying them with no guarantee period. I'm pretty sure the remaining 75% will be enough for more than 20 years.

 

[dknighd]

It is probably the only insurance product I've ever purchased that I actually hope to profit from.

 

[dknighd]

You should consider it. Then then decide yourself.

 

[Sanstar]

I’ve been consulting with FIDO rep regularly since retirement. Every call includes a plug for their Custom Portfolio management service.I know these calls are recorded and FIDO reps are paid by FIDO; not me. I always listen politely, say: I’ll keep this in mind and appreciate the information. Then move on to call’s agenda.

Never happens when we meet in their office. Plugging annuities may be a more recent part of their required sales pitch. I have a call coming up and while I expect the usual custom portfolio, thanks to OP, I’ll be prepared for an annuity pitch as well.

 

[ncbill]

40s is way too early for an annuity...inflation kills the real return.

one of my retirement calculators (MaxiFi Planner) recommends I annuitize whatever's left in tax-deferred when I'm around...age 80.

 

[ERhoosier]

I find this thread rather ironic.
A few years back my then employer (major university-affiliated) switched its retirement plans from TIAA/CREF to Fidelity with a major 'justification' being that TIAA/CREF too heavily 'pushed' its annuity products.
Mr. Pot meet Mr. Kettle

 

[Retired Expat]

I am all for creating a passive income stream in retirement! I just don’t think annuities are the way to go. Basically lend someone your money and they pay you interest but keep the principal.

I much prefer rental property where you get the rent and keep the ownership of the property. In the right markets you should be able to earn about the same return on your money, get all kinds of deductions and still hopefully get the appreciation on the property.

Has really worked out for us!

 

[mickeyd]

Fidelity advisor has recommended that we consider an income annuity

An agent looking for an easy commission...run away, run away!!